Will Play change its owner?

16 April 2016

Iguana Studio

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The owners of the fourth largest mobile network in Poland (Play) are contemplating the sale of their shares again. For a number of years, the company was valued at EUR 1.5 billion, while today’s evaluation is almost at EUR 1.8 billion. This is due to its market share at 21.9% in terms of the number of users. The largest player on the market now is T-Mobile Polska (26.8%), followed by Orange Polska (26.7%), and Polkomtel (22.6%). The remaining 2% is held by virtual operators, e.g. Virgin Mobile, who use the telecommunication infrastructure of their competitors. The penetration of such a market by a new player, even holding huge capitals, would be very difficult, if not impossible. Therefore, entities that are interested in entering the Polish market should think over the option to buy P4. With the present division of the ‘mobile cake’, the Office for Competition and Consumer Protection would block any attempts at Play acquisition by local competitors.

Why sell Play?

The present ownership structure has not changed since the Company entered the Polish telecommunication market in 2005. 50.3% shares are held by the Greek businessman, Panos Germanos via Tollerton. The remaining shares (49.7%) are owned by the Icelandic fund, Novator, controlled by Thor Bjorgolfsson. The owners have been trying to exit the investment for several years now; however, the declared price of EUR 1.5 billion has not convinced anyone. Year by year, Play has been strengthening its position and increased it from 18% (2012) to almost 22%, with the financial results recording continuous improvement as well. As a consequence, the desired amount of EUR 1.5 billion has not only been achieved but in fact increased to EUR 1.8 billion.
Two opportunities of selling P4 have appeared now.

The first one involves the direct sales of shares in Tollerton and Novator, to be completed by mid-2016. The most probable buyers are the Nordic Telenor and TeliaSonera. An interesting solution might by the entry of Liberty Global, the American corporation that holds UPC in Poland already, a provider of cable television and wireless Internet services. The potential interest of UPC in the deal is shown by the launch of a new function, Horizon, which provides access to the present services by phone or tablet. So far, a similar acquisition took place in case of Orange and Telekomunikacja Polska.

However, the stormy LTE band auction in Poland has to be kept in mind. The total amount to be obtained by the State Treasury is almost PLN 9.23 billion. This will affect the financial standing of the whole sector, and is the record-breaking price to be paid by telecoms for their access to the bands. This factor may affect the valuation of Play, because in spite of purchasing the band, Play is experiencing a major problem with erecting new base stations, which are necessary for the network operations. The difficulty stems from the aversion of local communities to see new antennas constructed; therefore, they have to be installed on buildings in city centres. The infrastructure of P4 is relatively small compared to those of their competitors; therefore, Play makes it possible to use the transmitters of their competitors.
There is another option to sell P4 on the ECM market. According to the latest news, Novator would sell its shares (49.7%) within IPO. So far, only Polkomtel (Plus) is listed on the Warsaw Stock Exchange as Cyfrowy Polsat and Orange Polska. However, this seems only to be the potential option, if no satisfactory offer of buying P4 is received.

What will be the consequences for the Polish telecommunication market?
The concentration of the Polish telecommunication market is low, while the fight among the players is fierce, where only 0.1% is often at stake. The risk of a new entity emerging on the market is low, for example due to gigantic financial barriers of an entry. Owing to the new migration rules, customers may choose among the operators freely, without losing a phone number. The sale of Play is an option for entering Poland by a new entity. For an average consumer, it would mean extending the range of present services and the falling prices on the telecommunication market. It would also increase the demand for enterprises that provide telecom services.

The sale of Play has never been as probable as now. The change of the ownership structure would have a very positive impact on every aspect of the market as well as the Polish economy. The revolution on the telecommunication market is coming and we should not be afraid of, but rather look forward to it.